Yes, there is a strong and completely legitimate case for it—in fact, an Insolvency Practitioner (IP) could argue they have a statutory duty to pursue these avenues, regardless of who sits at the top of the waterfall.
While the "Crown Preference" rules (reintroduced via the Finance Act 2020) pushed HMRC’s secondary preferential claims (VAT, PAYE, employee NICs) above floating charge holders and ordinary unsecured creditors, the fundamental mandate of an IP remains unchanged: to maximize realisations for the creditors as a whole.
The justification for using a percentage-costed (contingency-fee) duplicate payment recovery specialist rests on a few distinct legal, commercial, and practical pillars.
1. The "No Win, No Fee" Risk Mitigation
Under the Insolvency Rules (England and Wales) and Statement of Insolvency Practice 9 (SIP 9), IPs face heavy scrutiny regarding expenses. If an IP runs up hourly, un-capped fees using their own staff to audit historic purchase ledgers, they risk burning through the estate's remaining cash with no guaranteed return.
By contrast, using a third-party specialist on a percentage-of-recovery basis creates a risk-free scenario for the estate:
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Zero Downside: If the recovery agents find nothing, the estate pays nothing.
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Net-Positive Realisation: If they find £50,000 in duplicate payments and charge a 20% fee, the "creditor pot" instantly grows by a net £40,000.
Because the fee is deducted directly from a newly discovered asset, it does not deplete the existing funds available to pay the IP's own fees or the primary creditors.
2. Statutory Priority and the "Waterfall" Reality
Your point about the ranking is exactly why this strategy makes sense. Because the IP’s fees and expenses rank at the very top of the liquidation waterfall (under Category 1), any legitimate expense incurred to recover an asset is paid before anyone else—including HMRC or secured lenders—gets a look-in.
If a duplicate payment service is engaged properly:
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The recovered funds enter the estate.
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The specialist's percentage fee is paid out as a direct expense of the realization (ranking at the top).
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The remaining net windfall increases the total size of the pot.
Even if 100% of that net windfall ultimately goes straight into HMRC’s pockets because their preferential claim is massive, the IP has still fulfilled their legal function. The IP cannot refuse to claw back valid corporate assets simply because they dislike the statutory distribution order.
3. Commercial Judgment and Creditor Committees
An IP has wide discretion to exercise "commercial judgment" when winding up a company. If the IP can demonstrate to the liquidation committee (or the general body of creditors) that they are deploying a tool that actively expands the asset pool without risking existing funds, it is highly defensible.
In fact, failing to look for easy wins like duplicate payments or un-reconciled supplier credits—especially in high-volume retail, manufacturing, or distribution businesses where duplicate invoices are rampant—could theoretically leave an IP open to criticism for not thoroughly investigating the company's affairs.
The Compliance Boundary: The only caveat is transparency. Under SIP 9, the IP must explicitly disclose these third-party instructions and fee structures to creditors. Because the fee is a percentage of the value realized, it must be reasonable and clearly categorized as a direct expense of the liquidation, rather than an attempt to mask basic overheads.
Ultimately, using percentage-costed recovery services is one of the cleanest ways an IP can show they are proactively working the estate. It costs the existing pot nothing, relies on external expertise, and ensures that whatever the final distribution looks like, the absolute maximum amount of cash was wrung out of the dead ledger.
How are recovery fees specifically structured in a SIP 9 disclosure and how does the "Prescribed Part" for unsecured creditors interact with these windfalls?
When structuralizing fee arrangements for UK Insolvency Practitioners (IPs) to recover duplicate payments, the strategy must align precisely with SIP 9 (Statement of Insolvency Practice 9) and the Insolvency (England and Wales) Rules 2016.
Under SIP 9, IPs are no longer rigidly locked into a pure hourly "time-cost" model. They have the flexibility to utilize hybrid fee models and contingency-based third-party expenses, provided they pass the regulatory tests of being proportionate, directly attributable to the estate, and fully transparent to the creditors' committee.
Three main fee structures allow an IP to deployed percentage-costed duplicate payment recovery services cleanly:
1. The Direct Category 1 Third-Party Expense Model (Most Common)
In this framework, the IP maintains their standard fee basis (usually time-cost or a fixed fee) for administering the estate, but instructs the duplicate payment specialist as an independent third-party agent.
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How it Works: The recovery specialist operates on a "No Win, No Fee" basis, typically charging between 15% and 25% of all recovered cash.
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SIP 9 Classification: This is treated as a Category 1 Expense. Because the specialist is completely independent of the IP's firm, their contingency fee is paid straight out of the realization as a direct cost of recovering the asset.
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Approval Track: Category 1 expenses do not require prior approval from the creditors' committee before being paid. However, the IP must disclose the arrangement in their periodic progress reports, justifying why the percentage fee was a fair reflection of the specialist work required to yield the net benefit.
2. The Hybrid "Carve-Out" Percentage Resolution
Under Rule 18.16 of the Insolvency Rules 2016, an IP can seek a fee resolution from the creditors' committee that is split into distinct parts.
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How it Works: The IP requests a resolution where general statutory duties, director investigations, and basic asset sales are handled on a standard time-cost or fixed-fee basis. However, a specific "carve-out" clause states that for any book debt or historical ledger recoveries, the remuneration is fixed purely as a percentage of the value realized.
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Typical Sliding Scale:
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20% on the first £10,000 recovered.
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15% on the next £90,000.
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5% to 8% on anything recovered over £100,000.
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Approval Track: This requires explicit prior approval from the liquidation or creditors' committee. The IP must provide a narrative explaining why a percentage basis is expected to produce a fair reflection of the risk and effort involved compared to a flat hourly rate.
3. The Sub-Contractor Invoiced Fee Model
If the IP’s own firm technically claims a percentage-based fee for all asset realisations but delegates the technical forensic auditing to an external recovery partner, SIP 9 dictates a strict "no double-dipping" boundary.
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How it Works: If the IP has already been granted a blanket percentage fee for realisations, they cannot sub-contract the duplicate payment identification out and charge the specialist's fee on top as an extra expense to the estate.
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The SIP 9 Rule: Under Paragraph 22 of SIP 9, the officeholder cannot separately recover sums already factored into a percentage fee. Therefore, if the IP takes a 20% cut of the recovered funds, they must pay the third-party forensic software provider or recovery specialist out of their own firm's 20% allocation, not the estate's remaining balance.
The Crucial "Narrative Explanation" Test
Regardless of the model chosen, the absolute guardrail for any UK IP deploying this strategy is the narrative requirement reintroduced in the latest SIP 9 revisions. The IP cannot simply present a spreadsheet showing a deduction. They must explicitly document:
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What was done: "Instructed an independent forensic ledger auditor to review 36 months of historical purchase transactions."
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Why it was done: "The company operated a high-volume retail supply chain where human data-entry errors present a high probability of duplicate payments, posing no financial risk to the existing estate under a contingency fee framework."
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The tangible benefit: "Resulted in a net realization of £42,000 into the creditor pot after all third-party recovery costs were settled."
This direct link between the fee mechanism and a risk-free, net-positive financial benefit makes it virtually impossible for an ordinary creditor or HMRC to successfully challenge the arrangement as unreasonable.
How to Connect a Duplicate Payments Recovery Specialist and an Administrator
The connection between an Administrator (Insolvency Practitioner / IP) and a duplicate payments recovery specialist usually happens at a very specific window in the insolvency timeline. To make this relationship work seamlessly, the specialist needs to understand the IP’s operational pressures, and the IP needs to see a clear path to risk-free asset realization.
Here is how the connection is practically initiated, vetted, and integrated into a UK administration.
1. The Right Timing for the Pitch
An Administrator is busiest during the first 2 to 8 weeks of an appointment, focusing on statutory filings, securing physical assets, dealing with employees, or managing an accelerated M&A (Mergers and Acquisitions) process. Pitching a historic ledger audit during this window will likely get ignored.
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The Sweet Spot: The ideal time to connect is 2 to 6 months into the Administration, or right as the case transitions from an Administration to a Creditors' Voluntary Liquidation (CVL). At this stage, the dust has settled, the trading operations (if any) have ceased, and the IP is actively looking for hidden or "sticky" assets to maximize the final pot before distribution.
2. Crafting the "Insolvency-Ready" Value Proposition
When a recovery specialist approaches an Administrator, standard corporate marketing language ("We optimize your financial efficiency!") fails. The pitch must be framed entirely around risk mitigation, compliance, and fiduciary duty.
The specialist should lead with three specific assurances:
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Zero-Cost Liability: Explicitly state that the service operates on a pure contingent (No Win, No Fee) Category 1 expense basis. If no duplicates are found, the estate pays nothing, and no time-cost is burned.
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Minimal Disruption: Confirm that the specialist only needs a read-only data dump of the historical purchase ledger (ERP/accounting software extract) and matching bank statements. The IP’s small, busy team won't have to do the legwork.
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SIP 9 Transparency: Provide the IP with a pre-formatted, compliant "Narrative Template" that they can drop directly into their formal Progress Reports to creditors, detailing the fee structure and the risk-free nature of the engagement.
3. The Professional Vetting and Conflict Process
Before any data is handed over, the Administrator must put the specialist through a strict compliance onboarding process:
| Step |
Action |
Responsibility |
| 1. Conflict Check |
The IP checks if the recovery specialist has any prior links to the insolvent company, its directors, or its major suppliers. |
Administrator |
| 2. Engagement Letter |
A formal contract is signed detailing the exact percentage fee (e.g., 20%) and specifying that the fee is capped strictly at a percentage of cleared funds actually recovered into the insolvency bank account. |
Both Parties |
| 3. Data Security & GDPR |
Because historical ledgers contain supplier names, banking details, and transactional data, a robust Non-Disclosure Agreement (NDA) or Data Processing Agreement must be signed. |
Both Parties |
4. Operational Integration
Once connected and contracted, the workflow is straightforward. The Administrator's team extracts the historical accounting data—often backing it up from systems like Sage, Xero, SAP, or Microsoft Dynamics before the software licenses expire or are terminated.
The recovery specialist runs the forensic audit, cross-referencing invoice numbers, dates, values, and supplier payment files. Once duplicate payments are spotted, they compile a clear, evidence-backed bundle for each target supplier.
The specialist handles the collection process, but always under the banner of the "Company Name (In Administration)". When the overpaid supplier returns the cash, it is paid directly into the formal insolvency estate bank account, after which the specialist invoices the IP for their agreed percentage.
Is the Risk Higher for the Recovery Specialist in these Cases or Should all Creditors Allow Collections as it Add More Money to the Creditors Potential Realisations?
The short answer is yes, the risk sits heavily on the recovery specialist, and yes, creditors should absolutely allow—and encourage—these collections.
While it sounds like a win-win on paper, the underlying commercial and legal realities create an asymmetrical risk profile where the specialist takes the gamble, while the creditors reap only the upside.
1. Why the Risk is Higher for the Recovery Specialist
The narrative of "No Win, No Fee" sounds safe, but in insolvency cases, the recovery specialist faces structural hurdles that don't exist in standard corporate audits.
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The "Sinking Ship" Ledger Quality: By the time an IP takes over, the company’s internal accounting is usually a disaster. Staff have been laid off, systems are partially deactivated, and data is missing. The specialist spends dozens of unbillable technical hours cleaning and parsing corrupted data lakes just to find a starting point.
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The Defalcation & Insolvency Counter-Risk: Even if the specialist finds a definitive £20,000 duplicate payment made to a supplier, that supplier might also be on the brink of collapse or already insolvent. You cannot claw back cash from a dry well. The specialist faces the very real risk of successfully identifying a claim, only to find it is completely uncollectible.
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The Statutory Set-Off Trap (Rule 14.25): This is the biggest hurdle. Under UK insolvency law, if a specialist catches a duplicate payment made to Supplier X, the IP cannot automatically demand the cash back if Supplier X is also a major creditor of the estate. Instead, Insolvency Set-Off applies automatically. The duplicate payment is simply deducted from Supplier X’s claim against the estate.
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The Result: The "creditor pot" technically benefits because total liabilities decrease, but no physical cash enters the bank account. Because contingency fees are strictly calculated on cash recovered, the specialist walks away with £0 for their work.
2. Why Creditors and Committees Should Universally Approve It
From the perspective of HMRC, secured lenders, and ordinary unsecured creditors, there is zero logical or commercial ground to object to these exercises.
Absolute Protection of the Existing Pot
In a standard administration, if an IP hires traditional lawyers or forensic accountants on an hourly basis, they burn through the estate’s cash. If they fail, the creditors’ potential dividend shrinks to pay those hourly invoices.
With a percentage-costed recovery specialist, the existing asset pot is entirely ring-fenced. The fee only triggers on new money that nobody knew existed.
Maxing Out the "Prescribed Part"
For ordinary unsecured creditors who usually get pennies on the pound, a duplicate payment windfall can disproportionately work in their favor due to the Prescribed Part rules (the statutory ring-fencing of floating charge realisations for unsecured creditors, capped at £800,000).
Any sudden injection of recovered cash increases the total net property of the estate, expanding the amount of cash legally carved out away from the banks and handed to small suppliers.
Fulfilling the Fiduciary Duty
If a creditors' committee blocks an IP from using a contingency-fee specialist, they are effectively choosing to leave free money on the table. It would be highly contradictory for an unsecured creditor or HMRC to challenge a path that carries a 0% financial downside but offers a non-zero possibility of increasing their eventual payout.
The Takeaway: The recovery specialist takes on all the operational data risk, the collection risk, and the legal set-off risk. Creditors face none of it. For an IP and their creditors' committee, letting a specialist audit the dead ledger is essentially a free lottery ticket where the specialist pays for the stub.
Then That Fee Structure Seems Questionable in Terms of Attracting a Quality Duplicate Recovery Collection Service
That is the exact paradox of insolvency recovery work. If a duplicate payment recovery specialist uses a standard corporate contract where fees are calculated strictly on physical cash returned to the bank account, the insolvency framework makes it a highly unappealing gamble for a top-tier operator.
Because of the high rate of automated statutory set-offs and insolvent suppliers, a quality service could do days of heavy technical lifting, clean up a messy ledger, find thousands of pounds in errors, and walk away with absolute zero.
To attract a quality, tier-one duplicate recovery collection service, the fee structure has to evolve. Top-tier providers who understand the UK insolvency market protect themselves by modifying the definition of a "realization" or structuring a hybrid safety net.
Here is how a high-quality service modifies the fee structure to make the risk commercially viable.
1. Defining "Recovery" to Include Set-Off Reductions
The most significant change a specialized insolvency recovery service will make to its engagement terms is how a "successful recovery" is legally defined.
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The Standard Corporate Clause: "Fees are due on cash recovered into the client's bank account."
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The Insolvency-Specialized Clause: "Fees are calculated at X% of any asset recovered OR any liability mitigated via statutory insolvency set-off under Rule 14.25."
Why this works:
If the specialist finds a £50,000 duplicate payment made to a supplier who is also claiming £100,000 from the estate, the IP applies a set-off. The supplier's claim drops to £50,000.
No cash enters the bank, but the estate's liabilities just shrank by £50,000. Under an insolvency-ready contract, the specialist is paid their percentage (e.g., 20% of £50,000 = £10,000) because they delivered a quantified financial benefit to the estate. Since IP expenses rank at the very top of the waterfall, the IP pays this £10,000 invoice out of the general estate funds before anyone else gets paid.
2. Incorporating a Mobilization or "Data Cleaning" Gateway Fee
Top-tier recovery specialists rarely use a completely "blind" No Win, No Fee model on an insolvency ledger because the data quality is too unpredictable. Instead, they structure a small, fixed Data Ingestion or Processing Fee to cover the initial engineering time.
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The Structure: A flat fee (e.g., £1,500 to £3,000) is charged upfront as a Category 1 disbursement to map, extract, and normalize the fractured ERP/accounting data.
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The Contingency Offset: This fee is often structured as an advance against future success. If they find duplicates, the upfront fee is deducted from their first success-fee invoice.
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The Risk Mitigation: This ensures the specialist doesn't lose money on raw compute power and data engineering if the ledger turns out to be an irrecoverable mess.
3. Tiered Contingency Escalations (Risk Premium)
Because the collection risk is significantly higher when dealing with an insolvent company’s ecosystem, recovery specialists adjust their percentage rates upward compared to a standard healthy corporate client.
| Client Type |
Typical Contingency Fee |
Why? |
| Healthy Corporate |
10% – 15% |
Clean data, stable suppliers, low collection friction. |
| Insolvency Estate |
20% – 35% |
Corrupt data, set-off exposure, high supplier pushback. |
The higher percentage acts as a risk premium. The specialist accepts that they might strike out completely on three cases in a row, but when they hit a clean recovery on the fourth case, the 30% payout covers the unbillable hours sunk into the first three.
4. The "Value-Add" Beyond Just Cash
To make the service attractive to the IP (and therefore get them through the door), a quality recovery provider will also pivot their output. If they run the ledger and find that direct cash recovery is impossible, they don't just hand back a blank report. They provide the IP with:
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A Forensic Creditor Audit: A verified list of supplier balances that highlights which claims against the estate are inflated or mathematically incorrect.
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A Preferential Clue Map: Identifying major payments made to specific suppliers right before the administration window, giving the IP a roadmap for potential preference claims ($Insolvency Act 1986, s.239$).
By broadening the scope from a simple "cash grab" to a comprehensive ledger validation tool, the specialist ensures they provide value that the IP can justify paying for under a hybrid fee structure, making it a sustainable business model for a high-quality service.